Family Dollar to close stores as shoppers pinched

NEW YORK (AP) — Dollar stores are feeling the pinch from mounting financial pressures on low-income shoppers.

Family Dollar said Thursday that will cut jobs and close about 370 underperforming stores as it tries to reverse sagging sales and earnings. The discount store operator will also permanently lower prices on about 1,000 basic items.

Family Dollar Inc., which operates 8,100 stores, did not provide details on how many jobs it would cut.

The retail chain follows competitors in highlighting the split between shoppers who are enjoying an improving economy and those being left behind.

Dollar General, the nation’s largest dollar-store chain with 11,100 locations, offered a weak profit outlook last month after reporting weak fourth-quarter sales. And Dollar Tree, which operates about 5,000 locations, missed profit expectations for the holiday quarter in February.

Family Dollar has stumbled even more than its rivals because it has made mistakes in pricing, merchandising and the locations of its stores, analysts say. Still, the industry’s problems are a big departure from a few years ago, when Family Dollar and other chains packed in customers and expanded rapidly by catering to cash-strapped people during the Great Recession.

But that expansion has spread shoppers thin. And retailing giant Wal-Mart is muscling in, too, by accelerating its growth in small stores, while increasing its offerings of small packages that are easy on the budget.

Dollar chains are also seeing an increasing divide between low-income people who are facing more constraints on spending power and the higher-income households who are benefiting from improving housing values and stock market.

Among the most recent pressures: an unseasonably cold winter throughout the Northeast and Midwest pushed up utility bills. Food prices also crept higher in February.

And extended unemployment benefits expired at the end of last year for nearly 1.4 million Americans who have been out of work for six months or longer. Those recipients had gotten weekly checks of about $300, on average. In February, Congress approved legislation that made a small cut to food stamp benefits.

Meanwhile, wage growth has been sluggish since the recession ended nearly five years ago. And workers in some lower-paying industries have seen little, if any growth.

Family Dollar said the store closings and job cuts should reduce annual operating expenses by $40 million to $45 million, starting with the fiscal third quarter.

The Matthews, N.C., company also said it will slow new store openings beginning in fiscal 2015. It now anticipates opening 350 to 400 new stores. In fiscal 2014 it added about 525 stores.

Family Dollar Chairman and CEO Howard Levine told investors on a call that the poor weather led to numerous store closings, disruptions in merchandise deliveries and higher-than-expected utility and maintenance expenses. But, he said, shoppers’ financial constraints and a discount-driven holiday season also played a role.

Family Dollar reported that net income dropped to $90.9 million, or 80 cents per share, from $140.1 million, or $1.21 per share, a year earlier. Revenue fell to $2.72 billion from $2.89 billion. Analysts surveyed by FactSet expected earnings of 90 cents per share on revenue of $2.77 billion.

Revenue at stores open at least a year dropped 3.8 percent, worse than the 2.8 percent drop it had in the fourth quarter.

Levine said the company is reviewing its business to increase operational efficiencies and boost its financial performance. Levine said the price cuts, store closings and job eliminations are part of actions it is taking immediately to lift its performance during the review.

Family Dollar had shifted away from its focus on $1 items and had offered too many temporary promotions, retail consultant Craig R. Johnson said. The company now says it wants to go back to focusing on everyday low prices to restore confidence it offers a predictably good deal every time a shopper visits the store.

Shares of Family Dollar fell more than 2 percent, or $1.41, to $57.66 in early afternoon trading Thursday. Dollar General’s stock slipped 41 cents to $55.94, while Dollar Tree’s shares fell more than 2 percent, or $1.13, to $51.00.